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Monday, June 9, 2014

Latest bad idea from right-wing economists: cure wealth inequality with more policies that make us unequal

By Marc Jampole

Now that conservatives and their academic factotums realize
that they can no longer deny that we have become a world in which inequality is
growing, they are beginning to fight a rear-guard action by declaring that the
way to reverse the trend of greater inequality is to promote the very policies
that created it.

In a Wall Street
Journal article titled “The Blue-State Path to Inequality,” Stephen
Moore, chief economist of the right-wing Heritage Foundation, and Richard
Vedder, an economics professor at Ohio University, compare the inequality of
income in red states and blue states and finds that there is a greater spread
in the blue states, which they aver without proving have greater social safety
nets.

Moore and Vedder cook up a stew of bad math and faulty logic
to try to prove their point. Their
reasoning is so laughably inept that I think I’ll refer to them as the
“Keystone Profs,” in honor of the Keystone Cops, a fictional crew of
incompetent police officers from the silent movie era.

Let’s start with the
bad math. To demonstrate that inequality of income is greater in the blue
states, the Keystone Profs use the Gini coefficient, a single number cooked up
by an Italian statistician Corrado Gini more than a century ago. The Gini coefficient takes a set of raw data
and tries to turn it into a single number that can be compared to similar sets
of raw data of other populations; the lower the Gini the less inequality of
income exists in the population being measured.

The problem is that the
Gini coefficient is highly inaccurate. One of the first things that Thomas
Picketty does in his Capital in the 21st
Century is to discredit the Gini coefficient as a viable tool for measuring
wealth inequality. Even the Keystone
Profs admit there are many flaws in the Gini coefficient.

We cannot assume the
Gini coefficient sorts out the states accurately. The differences in Gini
coefficients in the red and blue states the article references are slight; all are
in the .400s. For example, the difference between red state Texas (.477) and blue
state California (.482) is slight—certainly within the margin of error of a
Gini coefficient comparison. We cannot
depend on a Gini ranking of the states to reflect reality. Yet the Keystone
Profs persist in using it.

But even if we accept the flawed Gini coefficient as our
tool for measuring inequality of income, Moore and Vedder’s argument doesn’t
hold water for two reasons. First of all, they assume that the wider social
welfare net in blue states causes inequality when in fact social welfare
programs are a response to inequality. Large
inequality of wealth developed earlier in the blue states, which industrialized
and urbanized first and include those two big-wealth magnets, New York City and
California. While the wealthy and ultra wealthy live everywhere, no one can
deny that more of them make their money or end up living in New York City and
the state of California. The large 19th
and early 20th century fortunes were made in or transferred to New York and
Chicago. Today’s high income professions are focused in New York and
California—entertainment, banking, high tech. New York and California have
always spawned multimillionaires at a higher rate than other states. No wonder
blue states communities recognized the problem of inequality earlier than red
states and have done more about it.

But while the blue states do more than red states to foster
equality of income and wealth, it isn’t much more on the world’s scale. All
states are providing less support to public school and university education
than 30 years ago and all have put the lid on or cut property and state income
taxes. All have suffered from lower federal taxes, a federal policy that has been
anti-union or neutral for more than three decades and the decline in local jobs
generated by the federal government.

The bigger mistake, then, is to limit the comparisons
between blue and red states. That’s like reciting the alphabet from C to
E.

There isn’t that great a difference in what blue and red
states do to counteract the tendency of free market capitalism to create wide
inequalities of wealth when compared to what governments do in western Europe
and Japan, which take more taxes from the wealthy and provide better
educational, healthcare and retirement benefits to everyone. While wealth and income inequality have grown
in western Europe and Japan (see Picketty’s book for a great analysis) over the
last 35 years, the populations of these countries still enjoy more income and
wealth equality than we do in the United States. By excluding western Europe
and Japan in the discussion, the Keystone Profs cook the books.

Vedder and Moore follow Picketty in saying that economic
growth removes inequality, but they advocate policies that are not pro-growth,
but pro-corporation. They assume that unions, minimum wages and high income
taxes are bad for economic growth when in fact the economic history of not just
the Unites States but the entire world proves that high taxes on the wealthy
and high incomes for workers lead to high growth because more of the wealth
circulates to people who will spend it as opposed to accumulating it in
overvalued assets, which is what the ultra-wealthy do with all of the extra
wealth they have from lower taxes.

And all you Wall
Street Journal subscribers in the audience thought it was the fish bones
that stank so putridly when you entered the kitchen this morning. No, it was
the newspaper you wrapped them in!

1 comment:

The wealthy are infected with the sickness of greed. They don't care that they are destroying the country that helped them acquire their wealth all they want is more. If their addiction makes the world burn so be it. They think that their wealth will protect them no matter what happens. So when equalization comes as it has so many times before it will take them completely by surprise because they are not as they believe omnipotent and invulnerable like a God. They're just a bunch of addicts about to go through a terrible withdrawal and the world will move along just fine without them.

If it weren’t for the entertainment value, I’d be pleased that Texas Governor Rick Perry is foundering in the Republican presidential race. After all, Governor Perry, who is in an unprecedented fourth term as chief executive of the nation's second-largest state, still might get the Republican nomination for president. If that happens there’s no telling what the voters might be fooled into doing. Just look at how far George W. Bush got.